Fixed Income Securities
The instruments are called as Government securities, Government bonds, sovereign bonds, gilt edged securities, corporate bonds, Treasury bills, commercial paper, certificate of deposits, state development loans, state guaranteed bonds, municipal bonds, capital gains bonds , Bank Tier 1 and tier 2 bonds, Tax savings bonds. Interest rate Futures, Repos, STRIPS,CBLO
Primary dealers, Banks, Insurance companies, NBFC’s, Co-operative banks, Regional Rural banks, FII’s, corporate treasuries, PSU’s, State government undertakings, Municipal corporations,HNI’s, Trusts
History & origin
How much do we know about a Government security? It is an instrument which has the sovereign guarantee of the central government. In India the instrument is referred as G-secs, central government security, Government bond. These bonds are as secure as the (currency which is legal tender). In fact, on the Government bond certificate, the signature affixed is that of the Governor of Reserve Bank of India. Post independence they were also known as Gilt-Edged securities. The edges of the Government bonds used to be lined with Gold dust during the time of Imperial Bank( now State Bank of India) and before.
Interest rate, paid once in 6 months to the holder, has a pre-defined maturity date. The lot size is Rs.100 and the minimum investment is as low as Rs.10,000/-
How to purchase, hold and trade-In the primary auction retail investors have been reserved 5% of the total issue. It can also be purchased in the secondary market through brokers or market participants. The holder can transfer the units easily to another individual entity
Development history
- 1964- UTI
- 1991- Financial reforms. Scam of harshad Mehta- Bank receipts, physical certificates were prevalent
- 1996- Satellite dealers
- 1997- primary dealers- Debt market began to be developed. The government’s fund raising programme in every budget had to be placed.
- 2001- NDS-OM was launched for the G-secs, prior to which it was physical and negotiations were over the phone only. Once this platform was made compulsory, the volumes of trades began growing.
- 2001- Madhavpura co-operative bank scam, which resulted in changes. Co-operative banks could deal only with NBFC’s and primary dealers.
The government’s borrowing calendar system was introduced, in which upfront the dates of raising funds via auctioning of bonds began to be published.
The corporate were also allowed to raise money through the debt instruments. As banks were unable to fund the large infrastructure projects, the private corporate infrastructure companies raised money by issuing bonds. Similarly the housing finance companies and NBFC’s.
Average volumes- G-secs & SDLS- Rs. 9,000 crs
Average daily volumes- Non- SLR bonds- Rs.2,500 crs
The fiscal deficit of the Indian government began to grow .
The institutions were the major participants with the lot size( minimum unit value) used to be Rs.5 crs. In order to make the instruments available to the retail investor the size of the instrument was lowered to Rs.10,000/- for G-secs and Rs.1 lac for other bonds. Later, it was changed to Rs.10 lacs lot size and compulsory dematerialized issues. Later, made these bonds to be listed on the exchanges.
In 2009, The NSCCL and ICCL were set up
Trading opportunities in the future- Interest rate movements, monetary policy of RBI, Inflation, Forex, Fiscal deficit, transferable bonds, electronic holding. Listed on the exchanges. As the volumes are low, the market making is not possible. If tax breaks are provided , the bond market can be active in the retail segment. Even the reduction of stamp duty, introduction of repos in the Corporate bonds and make the lot size to Rs.1 lac. Clean price vs dirty price settlement
Transaction- Through the existing demat account which is being used for the equity trades
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